TMI Blog2011 (2) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the CUP method, which is objective in terms of the purchase price of the associated enterprise - CUP method is the valid method for determining sale price - In result, the appeal is treated as partly allowed for statistical purposes - I.T.A. No.3944/D/2010 - - - Dated:- 11-2-2011 - SHRI RAJPAL YADAV, SHRI K.G. BANSAL, JJ. Appellant by : Shri Himanshu Shekhar Sinha, Advocate. Respondent by: Shri N.K. Chand, Sr. DR ORDER PER K.G. BANSAL: AM: The assessee-company filed its return of income on 13.12.2006, declaring loss of ₹ 36,70,840/-. Notice U/s 143(2) dated 26.11.2007 was served on the assessee for initiating assessment proceedings. In the course of the proceedings, it was found that the assessee had undertaken international transactions with its associated enterprise, whose aggregate value was placed in the books at about ₹ 3 crores. In order to determine arm s length price of these transactions, the matter was referred to the TPO after obtaining approval of the CIT. 1.1 The TPO found that the assessee has used CUP method for determining the sale price of the automobile wipers manufactured by it and sold to the associated ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to be reduced by an amount of 58,64,501/-. He also held that the income has to be revised upwards on account of excess depreciation on computer peripherals by an amount of ₹ 5,355/-. After making these adjustments, he computed the income of ₹ 21,99,020/-. A draft order was prepared accordingly. 1.4 The assessee objected to the draft order before the Dispute Resolution Panel ( DRP for short). The assessee made more or less the same submissions before the DRP as made before the Assessing Officer. In the order, it has been mentioned by the learned DRP that no fresh argument has been made by the assessee. All the arguments have been considered by the TPO. Therefore, there is no need to interfere with the order of the TPO. 1.5 In pursuance of this order, a final order was passed on 29.06.2010 determining the total income at ₹ 21,99,020/- as per the draft order. 1.6 Aggrieved by this order, the assessee is in appeal before us. It has taken up three grounds in the appeal. Ground No.2 projects the real grievance of the assessee, and ground Nos.1 and 3 are general and residuary in nature. The sum and substance of ground No.2 is that the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility does not stand established. We are of the view that we need not go into the ratio of this case for the reason that contemporaneous comparability of the products does not stand established by the additional evidence sought to be moved now by the learned counsel. No reason has been furnished as to why contemporaneous comparability report had not been obtained in the relevant financial year or soon after it is close. Further, we are unable to judge the issue of comparability merely on visual inspection of the wipers. Therefore, we do not admit the additional evidence for deciding the ground. 3. The learned counsel drew our attention to statement of facts prepared by the assessee company. It is mentioned therein that the company was incorporated in financial year 2003-04. 90% of the equity is held by Mr. Rajesh Chawla, NRI based in USA. He had been carrying on the business in USA under the name and style of M/s Advantage Asia, which is the associated enterprise. M/s Advantage Asia is a proprietary concern of Mr. Rajesh Chawla. The assessee set up its business of manufacturing and exporting of Wind Shield Wipers by locating its manufacturing unit in Noida SEZ. It is entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, he did not taken into account the fact that interest free unsecured loan of ₹ 1.81 crores was advanced by the associated enterprise to the assessee. The Assessing Officer also did not grant the benefit of deduction of 5% from the mean ratio determined by him. 4. In reply, the learned DR submitted that the assessee could not justify CUP method by producing contemporaneous documents before the Assessing Officer. The financial results of the associated enterprise have not been made available to the Assessing Officer. The FAR analysis was not provided to him. Therefore, the TPO has rightly rejected CUP method. Thereafter, TNMM has been adopted by him and it has been mentioned that this method takes care of a number of variable factors because ultimately what is seen is the ratio of profit to the total expenses. It is urged that the least the assessee could have done was to produce financial results of the associated enterprise to show that the sale price of Indian and Chinese goods was more or less the same. In this connection, reliance has been placed on the decision in the case of Ranbaxy Laboratories Limited (supra) to the effect that if the assessee cites foreign p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turers for both kinds of wipers. In the case of snow wipers, the invoices raised by the assessee are of higher amounts than those of the Chinese manufacturers. 6.1 The main question before us is whether, CUP is the most appropriate method in the case of the assessee for determining arm s length price? 6.2 We may examine the statutory positions in this regard. Section 92C prescribes five methods for determining arm s length price. It is further provided that the most appropriate method shall be applied for determination of arm s length price. The provision reads as under:- 92C: (I) The arm s length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely:- a) comparable uncontrolled price method; b) resale price method; c) cost plus method; d) profit split method; e) transactional net margin method; f) such other method as may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , legal status and country of tax residence of each of the enterprises comprised in the group with whom international transactions have been entered into by the assessee, and ownership linkages among them; (c) a broad description of the business of the assessee and the industry in which the assessee operates, and of the business of the associated enterprises with whom the assessee has transacted; (d) the nature and terms (including prices) of international transactions entered into with each associated enterprise, details of property transferred or services provided and the quantum and the value of each such transaction or class of such transaction; (e) a description of the functions performed, risks assumed and assets employed or to be employed by the assessee and by the associated enterprises involved in the international transaction; (f) a record of the economic and market analyses, forecasts, budgets or any other financial estimates prepared by the assessee for the business as a whole and for each division or product separately, which may have a bearing on the international transactions entered into by the assessee; (g) a record of uncontrolled transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nomic conditions are same for Chinese manufacturers and the assessee in this market. The buyers in America is not be concerned with economic conditions prevailing in India or China while purchasing the wipers. His concerns are the quality and the price. In view of this, the sale price of the Chinese manufacturers constitute a valid comparable cases. 6.9 As against the aforesaid, the case of the learned DR is that all documents as prescribed in Rule 10D are not maintained. The market conditions in China, in which Chinese manufacturers carry out their business, have not been spelt out. FAR analysis has not been done. The financial results of the associated enterprise have not been disclosed. Therefore, the CUP method adopted by the assessee does not establish the comparability. 6.10 In the case of Serdia Pharmaceuticals India Private Limited (supra), the Tribunal mentioned in paragraph No.66 that the CUP method or the traditional transaction methods are preferable to others in the sense that all other things being equal, the CUP and traditional transactional methods lead to more reliable results vis-a-vis the results obtained by applying transaction profit method. For the sak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducts are acquired by the assessee; and any unique feature of the market in which sale is made is of no importance in relative terms; the comparable transactions that occurred in Australia were not great. On their own the transactions relied upon that took place in Australia would not support the CUP analysis undertaken by the assessee. However, particularly in view of the fact that there is a global market, putting together all the comparable transactions relied upon by the assessee, the burden placed on him is satisfied. 6.13 The case of the learned counsel, built on these decisions, is that the market of sale for Chinese manufacturers and the assessee is of the USA. The products are comparable. In general, the CUP method is preferable to TNMM. In such circumstances, the Assessing Officer, in absence of any material or information or document in his possession, could not have made the opinion that the price charged in the international transaction has not been determined in accordance with subhttp:// section (1) and (2). Even if there are minor abberations in the CUP, it is complete rejection is not justified. 6.14 Coming to the case laws relied upon by the revenue, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econd point to be seen is regarding comparability of the products. No data or report is available in this regard. The case of the learned counsel is that wipers do not require any sophisticated technology for manufacture; therefore, no great difference is expected in the quality of Chinese made wipers and Indian made wipers. In fact, the claim of the assessee is that Chinese goods are of better quality. However, this claim remains unsubstantiated. The cases discussed above do lead to a conclusion that CUP method is the most direct method for determining arm s length price. In the case of Serdia Pharmaceuticals India (P) Limited, it has been held that CUP method is a preferred method and it leads to more reliable results visa- vis the results obtained by applying transaction profit method. In the case of SNF (Australia) Pty. Limited, it has been held that the focus is on the market in which products are acquired. The ratio of this case is applicable mutatis-mutandis to the facts of the case as the focus is on the market in which products are sold. Therefore, the CUP method could validly be employed provided product comparability is established. Therefore, it would have been appropri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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